Those Slippery TIFs

The Pilsen tax increment financing fund was created to promote industry. How does a 391-condo development qualify?

Seven years ago city officials stood before the people of Pilsen and vowed to save their relatively high-paying local industrial jobs. Their weapon was a TIF, or tax increment financing district, which would provide funding to help build new industries and keep existing ones from closing.

But last month the city signaled a retreat from this fight. Instead it's entertaining a proposal to replace a factory located in the TIF district with a 391-unit condominium and town house development. "Yes, it's ironic," says Euan Hague, a DePaul University geography professor who's studied the Pilsen TIF. "The housing development offers a very different version of the long-term future for Pilsen promised seven years ago."

A TIF is created by the City Council in order to divert a portion of taxes paid by property owners within a defined district into a fund, controlled by the city, for a specific purpose. According to their boosters, Mayor Daley among them, TIFs enable costly projects to pay for themselves: the improvements they fund seed development, which in turn increases the property tax revenue that feeds them. But there are considerable flaws in the TIF program, not the least of which is a disturbing lack of oversight.

State law requires the city to write a preapproval report explaining why a TIF is needed and what specifically it's supposed to finance. But the city's not required to follow up on these reports. There are no TIF budgets or annual hearings. There's no government body that reviews their management or effectiveness.

Roughly bounded by 16th Street on the north, Stewart on the east, Western on the west, and the Stevenson on the south, the Pilsen TIF zigzags around the southwest side's major industrial corridor. According to the city's preapproval report it's supposed to protect industries. "The employment data show that while industrial employment within the project area continues to remain overwhelmingly industrial in nature, many jobs are leaving," the report says. "The maintenance of this industrial job base is critical to the economic well being of the area and to the City." The report recommends that "where feasible, [the city should] repair and rehabilitate existing industrial buildings in poor condition" and "reuse vacant industrial buildings in serviceable condition for new business or industrial use."

In 1998 the City Council passed the TIF over opposition from local residents who feared that the infusion of funds would lead to gentrification. At the time city officials scoffed at these concerns. "They basically said, 'It's industry--what are you worried about?'" says Victoria Romero, a board member of the Pilsen Alliance, a local community group. "We didn't believe them."

Up until now the city has spent the Pilsen TIF money on industry. In 2001 it allocated about $3.5 million to help build a new linen-supply company and another $9.5 million to build a produce warehouse, according to the Neighborhood Capital Budget Group, a nonprofit watchdog that tracks TIF expenditures. In 2002 the TIF got its first big challenge when the Tool and Engineering Company closed its five-acre factory at 18th and Peoria. "They're a Detroit-based manufacturer," says David Betlejewski, executive director of the Eighteenth Street Development Corporation, a local business association. "They decided to consolidate their operations in Detroit." According to Betlejewski, a construction company is temporarily leasing the factory to store its equipment. But "obviously we'd like a permanent tenant," he says.

In 2003 Concord Homes, a real estate development firm, proposed tearing down the factory and replacing it with town houses. Twenty-fifth Ward alderman Danny Solis rejected that proposal after widespread community protest. Then last month Henry Cisneros, former head of the federal Department of Housing and Urban Development, emerged with a second plan for the factory site. Cisneros, who a decade or so ago resigned from HUD in the midst of a scandal about statements he'd made regarding payments to his former mistress (he later pleaded guilty to a misdemeanor count of lying to the FBI), is now a developer based in Texas. He's proposing to team up with Mota Construction Company, a Latino-owned contractor, and Kimball Hill Suburban Centers, a white-owned firm.

"A little over a year ago Cisneros came to me and said, 'We're interested in this development,'" says Solis. "I put together a planning committee of representatives from various local groups to discuss the plans with Cisneros."

Solis says he hasn't yet decided whether he'll endorse the project. "The developers told me they want to submit it for zoning approval," he says. "I told them, 'You can submit anything you want, but nothing happens unless I end up supporting it.' And it's not a done deal until I take it to the wider community and get their reaction."

But Solis says he likes what he's seen. He says Cisneros has promised that at least 21 percent of the development's units will be priced so middle-income people "like teachers, firefighters, and police" can afford them. Cisneros has also assured him that he will set aside at least half of the construction jobs for local Latinos. "And it will have a strong ethnic component to its architecture," says Solis. "It will be a Mexican theme--it will complement the community. It's not a done deal, but I'm encouraged."

There is, however, the problem of being located in an industrial TIF. Town houses and condos aren't what the TIF was created to support. But Solis and Betlejewski say they were unable to find a permanent industrial tenant for the factory.

"The problem is location," says Betlejewski. "It's the far end of the TIF. It's entirely surrounded with residences. We've taken people there to look at it and they say, 'This would be great if it were south of Cermak or Blue Island.' But because it's like an isthmus of industry in a residential neighborhood, that's another issue."

Solis says in retrospect the city probably should have left the factory out of the TIF district. But since it's in the TIF, he says, demolishing it may be better than keeping it. The city estimates the new houses will generate close to $15 million in property taxes over the next 16 years. Almost all of that yield will feed the TIF.

Solis says the extra TIF money will be used to rebuild schools, create new parks, and repave sidewalks--things that would be funded by property taxes if those weren't being siphoned into the TIF. "The best thing I've done since becoming alderman is creating that TIF," he says. "You can imagine all of the things we can do with that money." He points out that the city would probably have to have spent TIF money to induce a manufacturer to move to the old factory. "Here we have a development that won't take any TIF financing and it will add money to the TIF," he says. "I just had a meeting with [schools CEO] Arne Duncan, and we're going to use some TIF money [to rehab] Benito Juarez High School."

Well, that's a fine thing. But it's still not what the Pilsen TIF was created to do. Instead, the Pilsen TIF seems to be operating the way critics say most do: it's a giant piggy bank controlled by the mayor and the local alderman, whose unmonitored spending may or may not have anything to do with its original purpose.

"Think of it this way. Some of the [Pilsen TIF] money's gone to industry, right?" says one local developer who asked not to be identified. "I realize the details can get sort of ugly. But I look at it as a hook-or-crook sort of thing. So long as the TIF's going for a good thing, what do you care how it looks?"

That might be a reasonable attitude to take if there were only a handful of TIFs. But the city has created 131 of them, each with a renewable term of 23 years. According to a recent article in Crain's Chicago Business, about $329.5 million in property taxes is diverted into them annually.

Romero and her allies say they don't trust the city with all that money, at least not when it comes to Pilsen. On November 30 she and other members of the alliance held a protest on 18th Street outside the factory. They walked along the sidewalk in the bitter cold, holding signs and chanting "Pilsen's not for sale."

Afterward they conceded they're waging a long-shot campaign. "I knew as soon as I saw Cisneros's name it would be a harder fight. They're using a prominent Latino to sell it to the community," says Romero. "Our fears are becoming true. They said, 'Oh no, don't worry about the TIF--it's all about industry, not housing.' Yeah right, sure."

Art accompanying story in printed newspaper (not available in this archive): photos/Bill Stamets, Jon Randolph.